PENSKE TRUCK LEASING CO., L.P. v. WESTFIELD INSURANCE COMPANY
OPINION AND ORDER granting 52 Westfield's Motion for Summary Judgment. Signed by Judge Robert L. Miller, Jr on 11/16/2021. (CBU) Modified on 11/17/2021 (CBU).
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
PENSKE TRUCK LEASING CO., L.P.,
WESTFIELD INSURANCE COMPANY,
CASE NO. 1:19-CV-4199 RLM-TAB
OPINION AND ORDER
This case involves a dispute over Westfield Insurance Company’s handling
of claims arising out of a deadly motor vehicle accident. A semi-tractor owned by
Penske Truck Leasing, leased to Green Transportation, and driven by Jeffrey
Kolkman (a Green Transportation employee) collided with an automobile, killing
Mr. Kolkman and the three occupants of the automobile, Brian Lee, Aaron Lee,
and Stephanie Swaim. Penske is an insured under Green Transportation’s policy
with Westfield Insurance Company. Westfield denied coverage for claims asserted
against Penske by the Estates of Brian Lee, Aaron Lee, and Stephanie Swaim.
Penske brought this suit against Westfield for breach of contract, breach of the
implied duty of good faith and fair dealing, and a declaration of its rights under
the policy. The court grants Westfield’s summary judgment motion.
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I. STANDARD OF REVIEW
Summary judgment is appropriate when there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(a). A genuine issue of material fact exists if “there is sufficient
evidence favoring the nonmoving party for a jury to return a verdict for that
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). In deciding
whether a genuine issue of material fact exists, we accept the non-movant’s
evidence as true and draw all inferences in his favor. Id. at 255. The nonmoving
party is not entitled to “[i]nferences that are supported by only speculation or
conjecture.” Argyropoulos v. City of Alton, 539 F.3d 724, 732 (7th Cir. 2008)
(citation omitted). The existence of an alleged factual dispute, by itself, won’t
defeat a summary judgment motion; “instead the nonmovant must present
definite, competent evidence in rebuttal,” Parent v. Home Depot U.S.A., Inc., 694
F.3d 919, 922 (7th Cir. 2012), and “must affirmatively demonstrate, by specific
factual allegations, that there is a genuine issue of material fact that requires
trial.” Hemsworth v. Quotesmith.com, Inc., 476 F.3d 487, 490 (7th Cir. 2007); see
also Fed. R. Civ. P. 56(e)(2).
II. STATEMENT OF FACTS
On May 13, 2017, Jeffrey Kolkman, a Green Transportation employee, was
driving a semi-tractor tailor that Green Transportation had leased from Penske,
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when he failed to brake for stopped traffic on I-70 and collided with an
automobile, killing himself and the automobile’s three occupants, Brian Lee,
Aaron Lee, and Stephanie Swaim.
Green Transportation was covered by a commercial policy of insurance with
Westfield Insurance. As a condition of its lease agreement with Penske, Green
Transportation had added Penske Truck Leasing as an additional insured. Penske
contacted Westfield shortly after the accident to confirm it was covered under
Green Transportation’s policy, and Brad Klimek, the claims specialist who was
handling claims arising out of the accident, told Penske that it was.
Westfield learned that a dash cam in the semi-tractor showed that Mr.
Kolkman was looking at a computer tablet when the collision occurred. Westfield
engaged in settlement negotiations with representatives for the Estates of Brian
Lee, Aaron Lee, and Stephanie Swaim in May and June 2017, and agreed to pay
policy limits ($1 million) to settle any wrongful death claims they might have had
against Green Transportation and its driver, in exchange for releases of liability
for Green Transportation and Mr. Kolkman. Westfield didn’t notify Penske until
2019 of the settlements or that policy limits had been exhausted.
In April 2019, the Estates filed complaints against Penske asserting that the
semi-tractor involved in the accident was defective because it didn’t contain a
collision warning device. Penske notified Westfield of the complaints on April 24,
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2019 and asked it to defend and, if necessary, indemnify it under the terms of
Green Transportation’s insurance policy.
Mr. Klimek told Penske’s representative on May 9, 2019 that the policy
didn’t cover product liability claims. Penske renewed its request, and the matter
was referred to Westfield’s attorney, Linda Vitone, who told Penske by letter dated
July 18, 2019 that Westfield was denying coverage because the 2017 settlements
had exhausted the policy limits and that its duty under the policy to defend and
indemnify ended when the limits of liability were exhausted.
Penske filed this case three months later, alleging that Westfield breached
the contract when it denied Penske’s request to defend and indemnify (Count I),
that it breached its implied duty to act in good faith and fair dealing (Count II),
and that Penske is entitled to declaration of its rights under the policy (Count III).
Westfield maintains that it’s entitled to judgment as a matter of law on each
of Penske’s claims because:
The contract expressly provides that: (a) Westfield has the right to
settle any claims it considered appropriate, (b) the limits of liability
for “bodily injury” claims arising out of the accident was $1 million
per occurrence; and (c) its duty to defend and indemnify ends when
policy limits are exhausted [Doc. No. 54-1 (Exh. 1) (Count I); and
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Penske can’t show that Westfield breached its duty to act in good
faith under Michigan or Indiana law (Count II); so
Penske isn’t entitled to the declaratory relief it seeks (Count 3).
Penske asserts that multiple issues of fact preclude the entry of summary
judgment in this case, including:
Whether Westfield breached its contract by refusing to defend
Whether Westfield waived, or is estopped from arguing, an exhaustion
defense when it provided a different reason for denying coverage in
Whether Westfield breached the notice requirements in the lease
agreement between Green Transportation and Penske, which were
incorporated by reference in the policy, when it failed to give advance
notice of the settlement negotiations?
Whether Westfield breached the implied duty of good faith and fair
dealing under Michigan and/or Indiana law?
The parties agree that Michigan law applies to Penske’s breach of contract
claim because Michigan has the most intimate contacts with the contract of
insurance. The parties have no such agreement as to the tort claim in Count II.
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A. Count I: Duty to Defend and Indemnify
Penske says its coverage is governed by the Additional Insured and Loss
Payee Endorsements [Doc. No. 54-1 at 190-195], which modify the insurance
provided under the Motor Carrier Coverage Form [Doc. No. 54-1 at 172-186]. It
contends that those Endorsements are ambiguous because they don’t state what
the limits of liability were with respect to the lessor, so they must be interpreted
in Penske’s favor. See S. Macomb Disposal Auth. v. Am. Ins. Co., 572 N.W.2d 686,
697 (Mich. Ct. App. 1997); Michigan Basic Property Ins. Ass’n v. Wasarovich, 542
N.W.2d 367 (Mich. Ct. App. 1995). When the policy limits provision is viewed in
its favor, Penske says, there is no limit of liability with respect to Lessors, so the
policy limits weren’t exhausted, and Westfield breached the policy’s terms by
refusing to defend and indemnify it. Penske seeks a declaratory judgment to that
The policy provisions aren’t ambiguous; Penske’s suggestion that the parties
must have intended lessors to have limitless coverage “strains the imagination.”
Est. of Swan v. Westfiled Ins. Co., No. 3:07-CV-69 JVB, 2009 WL 3200298, at *6
(N.D. Ind., Sep. 25, 2009). The Additional Insured Endorsements say nothing
about the limits of liability coverage. They expressly provide that, “Information
required to complete this Schedule, if not shown above, will be shown in the
Declaration.” [Doc. No. 54-1 at 190, 192, and 194]. The Motor Carrier Coverage
Declaration states that the limit of liability for “Covered Auto Symbol 68” is
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“$1,000,000 Each Accident”. [Doc. No. 54-1 at 152], and the Motor Carrier
Coverage Form describes “Symbol 68" as “‘Autos’ you lease, hire, rent, or borrow”,
in this case the semi-tractor Green Transportation leased from Penske. [Doc. No.
54-1 at 172-186].
The policy also contains a section entitled “Additional Insured–Lessor of
Leased Equipment–Automatic Status When Required in Lease Agreement with
With respect to the insurance offered to these additional
insureds, the following is added to Section III–Limits of Insurance:
The most we will pay on behalf of the additional insured is the
amount of insurance:
1. Required by the contract or agreement you have
entered into with the additional insured; or
2. Available under the applicable Limits of Insurance
shown in the Declaration
whichever is less.
This endorsement shall not increase the applicable Limits of
Insurance shown in the Declarations.
[Doc. No. 54-1 at 149].
The undisputed evidence shows that policy limits in this case were $1
million, that Westfield was expressly authorized to “settle any claims or ‘suit’ ...
[it] consider[ed] appropriate”, and that its “duty to defend or settle end[ed] when
the Liability Coverage Limit of Insurance ha[d] been exhausted by payment of
judgments or settlements.” [Doc. No. 54-1 at 180].
Penske argues that the notice provisions in the Vehicle Lease Service
Agreement between Green Transportation and Penske were incorporated by
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reference in Green’s Commercial Insurance Policy, and required Westfield to
provide advance notice of its intent to settle the Estates’ claims against Green
Transportation and Mr. Kolkman. The policy language doesn’t support that
argument. The policy makes a general reference to “the contract or agreement
[Green Transportation] ha[d] entered into with the additional insured [Penske]”
[Doc. No. 54-1 at 149], but that reference falls far short of the an intentional
incorporation by reference. See Forge v. Smith, 580 N.W.2d 876 (Mich.
1998)(“[T]he incorporating instrument must clearly evidence an intent that the
writing be made part of the contract.” ).
Penske’s waiver/estoppel argument fares no better. Penske contends that
a genuine dispute exists as to whether Westfield waived, or should be estopped
from arguing, an exhaustion defense, because it didn’t deny coverage on that
basis at first, citing, e.g., Jones v. Jackson Nat’l Life Ins. Co., 27 F.3d 566 (6th
Cir. 1994); Bartlett Investments, Inc. v. Certain Underwriters at Lloyd’s London,
899 N.W.2d 761 (Mich. App. 2017); Cardinal Fabricating v. Cincinnati Ins. Co.,
2020 WL 3399576 (Mich. App. 2020). But in each of those cases, the insurer
changed its basis for denying coverage after the insured filed suit against it.
That’s not what Westfield did. Penske sent Westfield the complaints filed by the
Estates on April 24, 2019 and asked Westfield to defend and indemnify it against
those lawsuits. On May 9, Westfield responded to Penske and denied the request
because the allegations in the complaints involved "products" claims. The same
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day, Penske repeated its request and asked Westfield to reconsider. Westfield
referred the matter to counsel for further review, and she determined that
Westfield had no duty to defend or indemnify because the policy limits had been
exhausted; she sent Penske a letter to that effect on July 18. Penske was aware
of Westfield’s stated reasons for denying coverage when it filed this suit in October
B. Count II: Implied Duty of Good Faith
Count II of Penske's complaint alleges that Westfield tortiously breached its
duties as an insurer. Westfield seeks summary judgment on the ground that
either (a) Michigan law provides the rule of decision and doesn't allow an
independent claim for bad faith, or (b) if Indiana law applies, Westfield's conduct
didn't fall within Indiana's definition of actionable bad faith.
Penske responds that Indiana law governs under Indiana choice-of-law rules
for tort cases, and that Indiana law applies a negligence standard (not a bad faith
standard) in cases involving an insurer's tortious conduct toward its insured.
Penske points to the deposition testimony of its expert witness, Charles
Henderson, opining that Westfield's conduct fell below industry standards. Penske
argues that fact issues preclude summary judgment for Westfield, even if the bad
faith standard applied.
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1. Choice of Laws
If potentially applicable substantive laws of two states actually conflict, a
district court must apply the choice of law principles of the state in which the
court sits. Klaxon Company v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487 (1941).
Both sides agree on two propositions: first, that there is a conflict between Indiana
and Michigan law with respect to claims such as Penske’s Count II; and second,
that the appropriate choice-of-law analysis is what Indiana applies in tort cases:
courts apply the law of the state in which the tort occurred, unless that place
bears little relationship to the case, in which event courts consider where the
conduct causing the injury occurred, the parties’ residences or places of business,
and where the parties’ relationship is centered. Hubbard Mfg. Co. v. Greeson, 515
N.E.2d 1071 (Ind. 1987).
Westfield is an Ohio corporation with its principal place of business in
Indiana. Westfield issued an insurance contract to Green Transportation, which
is based in Michigan. That contract provided coverage to Penske, a Delaware
corporation with its principal place of business in Pennsylvania. The collision
giving rise to liability under the contract occurred in Indiana. The lawsuits in
which the personal representatives of those killed in the collision have sued
Penske were filed in Indiana. Indiana residents were killed in the collision. The
last event necessary to make Westfield liable on any variant of a bad faith theory
occurred when Westfield decided to exhaust the policy limits in Indiana and then
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decided in Indiana that it wouldn’t defend or indemnify Penske in the Indiana
lawsuits. Any financial loss that Penske might suffer will involve defending
Indiana lawsuits and, potentially, paying Indiana judgments.
Indiana is the state in which the tort occurred, and Indiana can’t be said to
bear little relationship to this case. The court applied Michigan law to Count I of
Penske’s complaint, and Westfield says that should tilt the scales toward Michigan
law on Count II. Westfield’s cited cases don’t support that proposition. In Bristol
West Ins. Co. v. West, 406 F. Supp. 2d 771, 788-789 (W.D. Mich. 2005), the
district court noted that similar factual considerations aligned the tort and
contract choices of law, but didn’t suggest that the outcome of one analysis
influenced the other. In Consolidated Rail Corp. V. Allied Corp., 692 F. Supp. 924,
928-929 (N.D. Ind. 1988), the discussion of other claims appears to have simply
highlighted the correctness of the outcome of the Hubbard Mfg. analysis.
The law of Indiana provides the rule of decision for Count II of Penske’s
2. Insurer’s Tortious Bad Faith Dealing
In Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515 (Ind. 1993), the
Indiana Supreme Court held that an insurer owes its insured a duty of good faith
and fair dealing, and that the insurer may be liable in tort for breaching that duty.
The court explained the minimum reach of the duty:
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... [R]ecognition of a cause of action for the tortious breach of an
insurer's duty to deal with its insured in good faith is appropriate.
We need not determine the precise extent of that duty today.
However, we make these general observations. The obligation of good
faith and fair dealing with respect to the discharge of the insurer's
contractual obligation includes the obligation to refrain from (1)
making an unfounded refusal to pay policy proceeds; (2) causing an
unfounded delay in making payment; (3) deceiving the insured; and
(4) exercising any unfair advantage to pressure an insured into a
settlement of his claim.
622 N.E.2d at 519. The supreme court hasn't expanded that list of examples in
the intervening 28 years, and expressly declined to expand the list in Monroe
Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 976 (Ind. 2005) ("Magwerks
asserts that the duty to deal in good faith includes also the 'manner of handling
the claim.' ... Magwerks does not elaborate on the contours of this duty. And
because neither party provides us with much guidance on the issue, we decline
at this time to expand on the extent of the duty an insurer owes its injured beyond
those we have already expressed in Hickman.").
Penske argues that Indiana law recognizes a cause of action for an insurer's
negligent lack of due care in performance. Penske cites Anderson v. St. Paul
Mercury Indem. Co., 340 F.2d 406 (7th Cir. 1965), in which the federal court of
appeals, trying to predict in a diversity case what the Indiana Supreme Court
would do, found no basis to think that Indiana wouldn't choose the same course
as Illinois, and so was "a negligence as well as a bad faith state and not just a bad
faith state." 340 F.2d at 409. The Indiana Court of Appeals cited Anderson v. St.
Paul with approval, but ultimately held that the plaintiff had no standing to
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pursue a negligence claim against another's insurer, in Bennett v. Slater, 289
N.E.2d 144 (Ind. Ct. App. 1972).
But those decisions didn't have the benefit of the Erie Ins. Co. v. Hickman
decision. This court, through Judge Springmann, has concluded that the federal
court of appeals' holding in Anderson, and the state court of appeals' favorable
citation to Anderson in Bennett, don't accurately reflect the law as set forth in Erie
Ins. Co. v. Hickman. Travelers Indem. Co. v. Johnson, 440 F. Supp. 3d 980 (N.D.
Ind. 2020). Penske has provided no persuasive reason to think this court was
wrong when it concluded that "an insurance provider, under Indiana law, does not
breach the obligation of good faith and fair dealing that it owes to its insured when
it merely acts negligently. Travelers v. Johnson, 440 F. Supp. 3d at 981-982.
Penske contends that the decision in Travelers v. Johnson is shown to be
wrong by language in an Indiana Supreme Court decision of a decade earlier,
Indianapolis-Marion County Pub. Library v. Charlier Clark & Linard, PC, 929
N.E.2d 722 (Ind. 2010). In that case, the supreme court considered a public
library's claim for economic loss in a tort case. In resolving the case, the court
found guidance in Professor Mark Gergen's draft of a revision of the Restatement
(Third) of Economic Torts and Related Wrongs for the American Law Institute.
Among the references to Professor Gergen's draft was this:
Said differently, our default position in Indiana is that in general,
there is no liability in tort for pure economic loss caused
unintentionally.17 But Indiana courts should recognize that the rule
is a general rule and be open to appropriate exceptions, such as (for
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purposes of illustration only) lawyer malpractice, breach of a duty of
care owed to a plain tiff by a fiduciary, breach of a duty to settle owed
by a liability insurer to the insured, and negligent misstatement.18
Id. at 736. Footnote 18 said this:
The general rule of Gergen Restatement Draft § 12 provides: "[A
person] is subject to liability in tort for pure economic loss resulting
from the [person's] negligent performance of a contract in cases of: (a)
professional malpractice; (b) breach of a duty of care owed to the
claimant by an agent, fiduciary, bailee, or common carrier in
supplying information or rendering a service; (c) breach of the duty
to settle owed by a liability insurer to the insured; and (d) negligent
Id. at 736 n.18.
These references breathe no life into Anderson v. St. Paul Mercury, 340 F.2d
406, or Bennett v. Slater, 289 N.E.2d 144. Indianapolis-Marion County Library
addressed the limits of the economic loss doctrine; in the course of doing so, the
court noted that the economic loss doctrine doesn't apply at all to some torts,
including "breach of a duty to settle owed by a liability insurer to the insured", a
tort not involved in the Indianapolis-Marion County Library case. It appears that
the supreme court paraphrased Professor Gergen's draft to remind readers that
the economic loss doctrine has exceptions - including cases alleging a breach of
duty to settle. Penske's argument might be based on the proposition that the court
spoke of "breach of the duty to settle" rather than "bad faith breach of the duty to
settle." The court drew its phrasing from Professor Gergen's draft. The phrasing
doesn't persuade this court that the Indianapolis-Marion County Library court
meant to change the rules that apply to cases different from the one before it. The
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Indiana Supreme Court generally is more forthcoming when it announces a rule
of law. Clearer language would illuminate a change from Erie Ins. Co. v. Hickman
and the language would be found in a case involving an insurer's bad faith.
This court must apply Indiana law to Count II of Penske's complaint. Erie
Ins. Co. v. Hickman states the law of Indiana. The tort for which Penske sues
Westfield requires a showing of bad faith, not merely negligence.
Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, teaches that the
"general observations" in Erie constitute - at least as of today - a closed set of four
ways in which an insurer can tortiously breach its duty of good faith and fair
dealing: "(1) making an unfounded refusal to pay policy proceeds; (2) causing an
unfounded delay in making payment; (3) deceiving the insured; and (4) exercising
any unfair advantage to pressure an insured into a settlement of his claim." Erie
Ins. Co. v. Hickman by Smith, 622 N.E.2d at 519. None of Penske's allegations
against Westfield fall into those categories. Westfield's refusal to pay wasn't
unfounded: all policy proceeds had been paid out by the time Penske was sued.
Penske makes no allegation that payment was delayed (rather than declined
altogether) or that it was pressured into a settlement. Of the four methods of
actionable bad faith as set forth in Erie Ins. Co. v. Hickman by Smith, that leaves
only "deceiving the insured."
Penske says Westfield deceived it (a) by not telling Penske about the
negotiations and settlement of the Estates' claims and (b) by telling Penske that
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its claim under the policy was denied because the policy didn't cover product
liability claims. Nothing in the summary judgment record would support a finding
that Westfield acted in bad faith, rather than simply negligently, in failing to notify
Penske of its discussions and settlement agreement with the Estates. By that
point, Penske had verified its coverage under the Westfield policy, but no one had
made any claims against Penske. It's hard to see how including Penske in (or
excluding Penske from) the settlement talks would make any difference to
Westfield, which was likely to pay out its policy limits no matter how many
insureds got releases from the Estates. Penske is right that Westfield gave a
different reason for its first refusal of its claim for coverage (no coverage for
product claims), but Penske asked if that was Westfield's final answer. Westfield
promptly replied that it wasn't the final answer, and expeditiously notified Penske
that it was denying the claim because the policy proceeds were exhausted.
Westfield was wrong at first, but no reasonable jury could find its first denial to
have been made in bad faith.
Westfield is entitled to summary judgment on Count II of Penske's
C. Count III: Declaratory Judgment
Penske seeks a declaratory judgment in Count III of its complaint. Given the
summary judgment rulings on Counts I and II, Penske isn't entitled to a
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Accordingly, Westfield’s motion for summary judgment [Doc. No. 52] is
November 16, 2021
/s/ Robert L. Miller, Jr.
United States District Court
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